(1) Field of the Invention
The present invention relates to collaborative transportation efficiency programs between buyers and sellers in a supply community, and more particularly to a method and system for effectuating collaboration on customer pick-up opportunities.
(2) Description of the Prior Art
Business partners must collaborate to compete in today's marketplace, especially to drive growth by short-cycle innovation and to liberate the resources required to fund the growth initiatives. As buyers and sellers have increasingly focused on their core businesses and competencies, driving non-value added costs out of their supply chains has become strategic to increasing value to the buyer (and consumer) through lower prices and innovation. Many companies have restructured their supply chains—reducing assets (plant and distribution center rationalization), costs (strategic sourcing initiatives, including out-sourcing), and inventory (integrated planning systems)—to be faster, more flexible, and more efficient. Only then can the right product be introduced to the marketplace at the right time for the right cost.
The most successful companies collaborate across enterprise boundaries, avoiding sub-optimization by “drawing the box” around the extended supply chain. In particular, logistics is a functional area that is “ripe for picking” with lots of low-hanging fruit, especially in the fast-moving consumer goods (FMCG) market where logistics costs are often 5 to 10% of the selling price of the goods. One opportunity is to improve the cost-efficiency of transportation (equipment and labor) by reducing empty miles between loads (“deadhead”), maximizing trailer utilization (weigh-out or cube-out the container), and minimizing non-drive time (wait time at the location and loading/unloading times, together referred to as “dwell time”). Customer pick-up (CPU) is an approach that can contribute to all three of these objectives. First, the truck making the delivery from a customer's regional distribution center (CDC) to one of that customer's stores often runs empty from the store back to the CDC. An “in-bound” shipment from the supplier's distribution center (SDC) to the CDC can be picked-up and delivered by that customer's truck for minimal incremental cost, provided that the SDC is (essentially) en route from the customer's store to CDC. The customer truck could even make several CPU pick-ups of partial loads, thereby maximizing shipment weight or cube, provided that the route from the store to the (more than one) SDC's to the CDC is economic and the required day of shipping and pick-up appointments can be synchronized. CPU can also significantly reduce non-drive time because the CPU carrier typically has privileges to drop the loaded trailer upon arrival at the destination DC and leave immediately (rather than One opportunity is to improve the cost-efficiency of transportation (equipment wait to have the trailer unloaded). Also, when there are delays, the CPU carrier usually receives preferential treatment from the CDC.
There are, however, several barriers that must be overcome for the supplier and customer business partners to realize the maximum combined value from CPU activities.
Strategic Alignment and Relationship Management: First, the supplier and customer must agree on a single strategy prior to engaging in a CPU relationship. Insofar as the selected strategy determines the process role of each partner, failure to do so will negatively affect the quality of the business relationship. For example, is the strategy to provide the customer with Origin Collect terms of sale, or is the strategy to improve the utilization of the customer's transportation assets? If the strategy is genuinely the latter, then the role of the customer is actually the role of a supplier of transportation services. Or, perhaps the strategy is to collaborate so as to drive non-value added costs out of the extended supply chain. If so, the partners should share the savings through a gainshare program such as that described in pending patent application Ser. No. 10/775,680 filed Feb. 11, 2004 which is incorporated herein by reference and hereinafter referred to as the Gainshare Module. Both partners are rewarded for investing the resource required to develop and implement exceptional business processes. In today's CPU activities, these topics are not even considered, much less discussed and agreed upon. It is clear that a variety of strategies are available. The partners must agree on one, and only one, approach and then apply it rigorously. Unfortunately, conflicted behavior is not uncommon. For example, in the fast moving consumer goods (FMCG) market, customers espouse collaboration (share the savings), but then expect the supplier to use a CPU formula that is (essentially) “cost-neutral” for the supplier.
Discovery: The current processes available to customers for discovering attractive CPU opportunities are unworkable. It is difficult for customers to 1) determine which suppliers offer CPU programs, 2) determine which of these CPU programs have policies that would be acceptable to the customer and procedures that are feasible for the customer, 3) identify shipping locations for a candidate supplier that are logistically feasible (location, volume, and typical shipment weight or cube), and 4) agree on an allowance via the standard process of requesting a CPU allowance quotation for the shipping lanes (SDC to CDC) of interest. As a result, most customers approach CPU in a tactical manner, supported by little, if any, strategic network-wide analysis to identify the highest-value set of lanes and suppliers. A simple, expeditious discovery process would allow the simultaneous assessment of many CPU options, most likely resulting in an improved solution.
Program Complexity: No two CPU Programs are alike. For many sensible reasons, programs differ significantly in policy, procedure, and the structure of the formula used by the supplier to determine the CPU allowance. In practice, differences in policy and procedure get overlooked because enforcing compliance is so difficult. Regardless, the differences in allowance formula structure alone introduce significant complexity and confusion. The biggest difference is the basis of the CPU rate structure—is the CPU allowance rate a flat rate per purchase order or shipment (usually with a weight, cube, or pallet minimum), or is the CPU allowance determined by extending an agreed “cost per unit” rate ($ per weight, cube, or pallet) by the number of units (weight, cube, or pallet) without a minimum requirement? There are many options for the CPU rate structure, and for the other cost components, and each has its pros and cons. Predictably, confusion and anxiety are common, affecting the quality of supplier/customer relationships. Furthermore, it is difficult for a supplier to offer a CPU program that has the capability to alternate between different CPU allowance rate structures, so that the most appropriate structure is utilized for each load. For example, the allowance for a load that weighs out should not be determined using a cube basis rate structure. Lacking this capability, partner dyads resign themselves to choosing just one rate structure, and accepting its limitations.
Program Compliance and Performance: In CPU, the supplier cedes control for the shipment to the customer upon pick-up by the customer (or the customer's carrier) at the supplier's ship-from location, even though the supplier typically retains title until the goods are delivered. In so doing, the supplier implicitly assumes several risks, such as:                1) Diversion: The customer can, having accepted an allowance to deliver a shipment to a specific CDC, divert that shipment to another CDC. This action can affect the supplier's stock allocation planning process as the inventory records (by location) are now incorrect. There is also the possibility that the customer never intended to deliver to the agreed destination, especially if the cost of delivery to the diverted location is less than the cost of delivery to the agreed destination. Regardless, it is very difficult, if not impossible, for the supplier to verify that the shipment was delivered to the agreed location.        2) Late Delivery and Unloading: The customer's traffic manager (or dispatcher) might (knowingly or unknowingly) make decisions that compromise the on-time arrival and unloading of the CPU shipment. Pick-up delays result when the CPU carrier cannot or does not honor their volume commitment, which is most likely during shipping peaks created by promotional events. In such an event the supplier must convert the load from CPU to Delivered and scramble to secure a carrier, which may be difficult as the supplier probably does not consistently ship on that lane. Delays are then common. Shipments can also be delayed due to a “relay”, where the trailer is handed off from one power unit to another, risking a delay on the transfer. Or, upon arrival, the CDC may choose not to promptly unload the trailer. At best, such events result in partner conflict over payment term compliance, as the supplier bases the payment due date on the assumed arrival (and unload) date, while the customer typically bases the payment date on the actual (and possibly later) unloading date. At worst, these delays result in an out-of-stock situation, and the supplier loses sales. In fact, it is for this reason that buyers in the FMCG market are known to complain about the poor on-time performance on CPU shipments delivered by their customer's private fleet or for-hire CPU carrier.        3) Enforcement: Needless to say, enforcement is challenging. First, the supplier can only measure on-time pick-up. It is then impossible for the supplier to reduce a discussion of on-time delivery to a fact basis. Even if the supplier could do so, they might be reluctant to because it might risk sales, especially for a strategic collaborative buyer/seller partnership. This is a simple consequence of the fact that customer is playing two roles—customer on the buy/sell of the goods, and provider (supplier) on the buy/sell of transportation services. The supplier typically defers to the customer role, and poor compliance on the CPU Program is ignored.        4) Financial Transaction Process: The standard terms of sale in the FMCG market is “Destination Delivered”, meaning that title to the goods transfers from the seller to the buyer on receipt at the customer's receiving dock (“Destination”) and that the transportation is arranged and paid for by the supplier (“Delivered”). Insofar as suppliers are often reluctant to quote an Origin Collect selling price, the standard industry practice is that suppliers offer customers who wish to pick-up their freight an “off-invoice” line item (i.e., credit) on the invoice for the goods in an amount agreed by buyer and seller. This credit is referred to as a “CPU allowance”. Another practice, although less common, is for the customer to submit a freight bill to the supplier in the amount of the CPU allowance. Either way, the financial transaction is an exceptional business process, if not for the buyer than certainly for the seller, leading to confusion and failure. In addition, if the CPU Line Haul Cost is to be corrected for changes in fuel prices via a fuel adjustment, then the parties have to manage the additional complexity of changing the allowances on the agreed adjustment cycle (often weekly). For these reasons, many sellers simply refuse to offer the option of CPU because they are not confident of successfully managing the process complexity that CPU introduces to the freight payment financial transaction process.        
Presently, there are no commercially available and practicable solutions that overcome these barriers and limitations, leaving consumer goods manufacturers and retailers (distributors) anxious and confused. A better solution is needed. Such a solution must not only address the barriers and limitations, but also must be:
1) Trusted: The solution's process must be sensible and fair, the rules pre-determined and enforced.
2) Robust: The solution must accommodate diversity at the strategic and tactical level.
3) Integrated and Systematic: The process by which the partners request and communicate CPU allowances must be integrated (one system serves all) and system-driven, preferably on the Internet.
4) Cheap and Easy to Use: The solution's process must be simple and intuitive, extendable with little incremental cost or effort, and inexpensive with no initial investment, so that all partners, regardless of size or capabilities, can participate.